Data Crisis 2020?


Deutsche Bank’s agreement to pay $7.2bn (£5.9bn) to US authorities late last year provided another aftershock from the 2008 Subprime mortgage scandal. This news struck a particular cord with me after recently watching the movie ‘The Big Short’. The film tells the tale of a few visionaries that spotted the dangers of the negligence, greed and straight up dishonesty that resulted in a global financial crisis. These individuals were able to foresee what was about to unfold by doing one simple thing that the rest of the world did not. They looked into the quality of thousands of mortgages that had been bundled together to build a multitude of complex financial products  and quickly realised it was a house of cards.

As an economist by qualification and a researcher by trade I decided to explore the lesson at the heart of this story and see if there are any potentially similar risks to other industries not least the one that I am a part of, Market Research.

Firstly I would like to provide some additional context surrounding the financial crisis to enable me to illustrate my comparison.

At the heart of the financial crisis was the ‘Mortgage Backed Security’ (MBS), a product that generated substantial profit for the banks. To meet the markets appetite for this product the banks began to build these securities using riskier and riskier mortgages. The contracts and paperwork around the MBS products were vastly complicated. This made the banks selling these investments blind to the fact that they were propped up by nothing more than subprime mortgages or in simpler terms bad loans.

To add further fuel to the fire the rating agencies (the body responsible for regulating these types of products) also failed to realise the dangers and had declared these products entirely secure (AAA – rated). The rating agencies lack of attention to detail can be attributed to commercial peer pressure. These agencies relied on commissions for providing accurate ratings, however there was a conflict of interest. If they didn’t provide the banks with the ratings they desired, the banks would simply move their business to another agency. This undermined the validity of their service which coined the term – ‘ratings for fees’. This situation of ‘the blind leading the blind’ created the huge bubble in the housing market that eventually burst as the homeowners responsible for the subprime mortgages began to default on their payments.

So is there the potential for something similar to happen in the research industry?

At the heart of the financial crisis the product was the mortgage, in our industry the product could be data. I would argue the role of market research agencies is akin to the rating agencies in that their key function is to ensure the data they deliver meets all industry standards and provides a solid basis for all wider decisions and business strategy. It could also be said that with a UK Market Research sector worth circa £3 billion alone that the global market conditions could provide a similar environment for an initiative driven by negligence and greed to get very out of hand.

So, let’s start with the oversight of fundamentals. Historically it was Market Research agencies that pitched for research budgets. They in turn would rely on fieldwork companies to handle the data collection. Today the procurement of data is being sourced by an increasing number of stakeholders, (some with no formal research training) and there is the potential for fieldwork companies more concerned with profit margins than data quality to recommend a solution that may not be best for the client.

The danger for stakeholders is that the fundamental product, the data, is not of the highest quality.  The phrase ‘inspect what you expect’ has never been so poignant for research buyers. If the data is of poor quality or narrowly sourced, it doesn’t matter how effective or complex the modelling tools are – you can’t make a good omelette with bad eggs.

The second potential risk, is research no longer guiding creative, but instead the creative manipulating the outcomes of research. Using research to underpin a marketing campaign is an approach we advocate. It is the best way to ensure your messages have a true impact and stand up to scrutiny. Here is a recent example of how Vodafone arguably one of the UK’s biggest brands came unstuck . We always recommend that our clients provide us with their final materials to ensure the wording is accurate and based on substantiated data points to avoid any potential embarrassment.

It is also not uncommon for us to hear the phrase ‘we need the research to show this…’ during briefings. Never a good thing. As we understand it, the end result of any marketing campaign is to grow or consolidate market share. Research done well can support this end by providing insights and concepts that resonate with the consumer base. Instead, agencies are often using research and data to support an idea that is already formed. This often creates a campaign that only reaches the people that match the demographic of individuals that designed it, and usually with little or no commercial effect.

A well-known characteristic of human behaviour is over confidence in our beliefs and business decision making processes do not usually allow for this, to use a quote from the movie ‘The Big Short’ – ‘it ain’t what you don’t know that will hurt you, it’s what you know for sure, that just ain’t so’ (Mark Twain).

Add to the mix the current media and communications climate as it is; fake news erupting, false polling predictions or a disengagement with customers outside the M25, is it not a matter of time before we see a data crisis?

We believe that data will (and should!) come under more scrutiny in the coming years. If we are correct then there could be more cases where brands fall foul of insights drawn or campaigns supported by poorly constructed or sub par data.

In a world where data is becoming more readily available than ever we must take note of the dangers of its miss use and ensure processes are in place to ensure we adhere to best practice.

At Vitreous World we aim to empower our stakeholders to ask more questions and understand not only the dangers of bad research but how to make sure they get the maximum value from our services.

To this end, we offer training via the PRCA (free to all their members) offering guidance, support and access to research expertise. All our goals as a research consultancy are centred around the employment of a responsible, transparent and accountable process.

If you would like to see how we can help you in 2017 or to register your interest in the training you can do so by contacting us here

Thanks for reading and Happy New Year!

Robert Agnew

Associate – Vitreous World